For many Medicaid applicants, individual retirement accounts (IRAs) are one of their biggest assets. In Virginia, IRAs count as an available asset and affect Medicaid eligibility.
Medicaid applicants can have only a small amount of assets in order to be eligible to receive benefits ($2,000 for single individuals). Certain assets — i.e., principal residence, car, and burial plot — are exempt from eligibility determinations.
In Virginia, IRAs count as resources for Medicaid if the individual can withdraw a lump sum amount, regardless of whether or not the account is in payout status. The same rules apply for Roth IRAs in Virginia. If the individual can withdraw a lump sum amount from the retirement account, it counts as an available resource.
In other states, however, whether your IRA counts as an exempt asset depends on whether it is in “payout status” or not. At age 70 ½, individuals must begin taking required minimum distributions from their IRAs, which means the IRA is in payout status. You may also be able to choose to put your IRA in payout status as young as age 59 ½ if you elect to take regular, periodic distributions based on life expectancy tables. Excluding Virginia, if an IRA is in payout status, some states may not count it as an available asset for the purposes of Medicaid eligibility, but the payments you receive will count as income. Roth IRAs do not require minimum distributions, and thus count as resources for Medicaid applicants in many states.
If the IRA is not in payout status, the IRA is a non-exempt asset, which means the total amount in the IRA will probably be counted as an asset, affecting your Medicaid eligibility. In order to qualify for Medicaid, you will need to cash out your IRA and spend down the assets. Alternatively, you could transfer the money to your spouse or someone else, although there will likely be an income tax penalty for doing this.
The rules regarding IRAs and Medicaid are complicated and vary from state to state. You should talk to your attorney about your IRA to determine the best course of action for you.
See these resources for more information on retirement planning and Medicaid’s rules.
